Secular Stagnation and Macroeconomic Policy

Mundell-Fleming LectureInternational Monetary Fund

November 3, 2016

Lawrence H. Summers

Great Recession Very Damaging

Sources: Bureau of Economic Analysis, NBER, CBO, Census 2

Triumph of Hope Over Experience

Sources: IMF, Federal Reserve 3

Market Has Been Too Optimistic

Sources: Bloomberg 4

Secular Stagnation

5

Real Rates Have Fallen Steadily

Sources: Bloomberg November 2, 2016 6

Along With Rates In The Rest Of World

Sources: Bloomberg, IMF 7

Secular Stagnation Then and Now

Sources: Bloomberg, Philadelphia Fed Survey of Professional Forecasters Q4 2013, BEA, Federal Reserve 8

Income Inequality and Secular Stagnation

Sources: IMF Working Paper 16/121 by Alichi, Kantenga and Sole “Income Polarization in the United States” 9

Demography and Secular Stagnation

Sources: FEDS Discussion Series 2016-080 by Gagnon, Johannsen and Lopez-Salido “Understanding the New Normal” 10

Leading Companies Require Less Investment

Sources: Bloomberg 11

Capital Flows and Secular Stagnation

12

Growth at a Permanently Lower Plateau?

13Sources: IMF, Countries weighted by PPP

Ten Year Swap Spread

Sources: Bloomberg 14

BAA Spread Above Ten Year Treasury

Sources: Bloomberg 15

Stock Prices Reflect Slower Growth

Sources: Bloomberg, Congressional Budget Office 16

Debt Stock Rising Rapidly Despite QE

Sources: Greenwood, Hanson, Rudolph and Summers “Government Debt Management at the Zero Lower Bound”;Treasury Q3 2016 Report to Borrowing Committee; Federal Reserve; BEA

17

Always A Decent Chance of Recession Intermediate Term

Sources: NBER, Economic Cycle Research Institute 18

Large Rate Cuts Are Often Necessary

Sources: Bloomberg, Core PCE Deflator from Bureau of Economic Analysis 19

Zero Long-Term Real Rate: Swaps

Sources: Bloomberg November 2, 2016 20

Ultra-High Duration Bond Demand

21Sources: Bloomberg, PIMCO

France

UK